justified price multiples

[travelin.man119]

why is return minus growth always used as the denominator to represent earnings for all the justified multiples?

[kmart]

It comes from your GGM

Everything in that reading can be drived from P0 = D1 / r-g

Although I’m having trouble deriving with P/B ratio being (ROE - g) / (r-g)

[S2000magician]

@kmart

It comes from your GGM

Everything in that reading can be drived from P0 = D1 / (r-g)

Spot on.

@kmart

Although I’m having trouble deriving with P/B ratio being (ROE - g) / (r-g)

Take a look at the article I wrote on justified ratios; I have all of the derivations: http://financialexamhelp123.com/justified-ratios-price-multiples/.

[kmart]

Thanks!

I made it much harder than needed.

[S2000magician]

@kmart

Thanks!

You’re welcome.

@kmart

I made it much harder than needed.

Good that you got that out of your system before the exam.